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on Efficiency and Productivity |
| By: | Sen, A. |
| Abstract: | I examine the recent productivity growth slowdown and the emergence of digital technologies through the lens of production networks. Digital technologies are increasingly embedded in intermediate inputs, and digital-intensive sectors, often key producers of intermediate and capital goods, amplify the positive effects of these technologies across industries. I show that the slowdown in computer-specific technical change has contributed to the decline in aggregate productivity growth, particularly in digital-intensive service industries, with these effects spreading through the economy via intersectoral linkages. My estimates suggest that this accounts for around 45–55% of the productivity growth slowdown in both the UK and the US since the mid-2000s. I attribute this slowdown largely to structural changes within the computers industry, especially the rising value-added intensity of the sector. In general, production in digital technology-producing industries is characterized by perfect complementarity, explaining the waning effects of digital technologies on aggregate productivity since the mid-2000s. In light of these findings, I take a pessimistic view on the future of productivity growth. |
| Keywords: | digitalization, productivity, production networks, investment-specific technical change |
| JEL: | O30 O33 D57 O47 L86 L23 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2472 |
| By: | Ahmed BOUNFOUR; EDAMURA Kazuma; ISHIKAWA Takayuki; MIYAGAWA Tsutomu; Alberto NONNIS; TONOGI Konomi |
| Abstract: | Many economists have argued that progress in digitalization contradicts the productivity slowdown in advanced countries in the 2010s. Among these discussions, Brynjolfsson, Rock and Syverson (2021) showed that although large associated costs for investment booms for new technology decrease productivity growth in the current statistics, this TFP growth is underestimated when these costs are recognized as intangible investment. They call the gap between the standard measure of TFP growth and the revised measure of TFP growth the ‘productivity J-curve’. Following their article, we measure the productivity J-curves in five advanced countries (France, Germany, Japan, the UK and the US). Before we measured the productivity J-curves, we estimate firm value function with multiple assets where estimated coefficients of assets show associated costs with capital formation of these assets. Using the estimated results of all assets, we find the productivity J-curves in the 2010s. Our finding shows that the productivity slowdown in the 2010s in these advanced countries is overstated. Next, we focus on the productivity J-curves in each asset, following Brynjolfsson, Rock and Syverson (2021). Our measurement of productivity J-curve shows that in Europe and Japan in the late 2010s, we do not find large underestimations of TFP growth caused by intangibles associated with capital formation in R&D, software and organizational capital. However, we still find a large underestimation of TFP growth rate in the US due to the large costs associated with investment booms for software generated by the rapid digitalization that was undertaken. This implies that the productivity gap, when accounting for the adjustment costs of investment between the US and other advanced countries, is larger than that measured using standard statistics. To conduct innovative activities in the area of digitalization, European countries and Japan should focus on the associated costs of innovative capital formation targets such as training skilled workers and changes in their overly conservative management behavior. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:24079 |
| By: | Danial Lashkari; Jeremy Pearce |
| Abstract: | In a previous post, we provided evidence for a broad-based slowdown in productivity growth across industries and firms in the U.S. manufacturing sector starting in 2010. Since firms’ investment in research and development (R&D) for new technologies constitutes a central driver of productivity growth, in this post we ask if the observed slowdown in productivity may be due to a decline in R&D. We find that “R&D intensity” has been increasing at both the firm and industry level, even as productivity growth declines. This points to a decline in the effectiveness of R&D in generating productivity growth in U.S. manufacturing. |
| Keywords: | productivity; manufacturing; innovation; competition; economic growth |
| JEL: | O33 O40 |
| Date: | 2025–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99374 |
| By: | Mr. Serhan Cevik; Sadhna Naik; Keyra Primus |
| Abstract: | European countries are lagging behind in productivity growth, with significant productivity gaps across industries. In this study, we use comparable industry-level data to explore the patterns and sources of total factor productivity (TFP) growth across 28 countries in Europe over the period 1995–2020. Our empirical results highlight four main points: (i) TFP growth is driven largely by the extent to which countries are involved in scientific and technological innovation as the leader country or benefiting from stronger knowledge spillovers; (ii) the technological gap is associated with TFP growth as countries move towards the technological frontier by adopting new innovations and technologies; (iii) increased investment in information and communications technology (ICT) capital and research and development (R&D) contributes significantly to higher TFP growth; and (iv)the impact of human capital tends to be stronger when a country is closer to the technological frontier. The core findings of this study call for policy measures and structural reforms to promote innovation and facilitate the diffusion of new and existing technologies across Europe. |
| Keywords: | Total factor productivity; technology; R&D; innovation; human capital; Europe |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/258 |
| By: | Mark Vancauteren (Universiteit Hasselt); Kevin Randy Chemo Dzukou (INRAE, Nantes); Michael Polder (Statistics Netherlands); Pierre Mohnen (Maastricht University); Javier Miranda (Halle Institute for Economic Research, Friedrich-Schiller University Jena) |
| Abstract: | We study the relationship between ICT, total factor productivity and export at the firm level in Belgium, France and the Netherlands. In particular, we look at whether ICT has both a direct effect on export and an indirect effect via productivity improvements. We allow for endogeneity, unobserved heterogeneity, dynamic feedback, initial conditions and correlations between the time-invariant random effects and between the idiosyncratic random effects. We find similarities but also differences in the effects of ICT on export between the three countries. |
| Keywords: | ICT, productivity, export, firm data, Panel Data, international comparison |
| JEL: | C23 D24 F14 O30 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-462 |
| By: | Tomás R. Martinez; Thiago Trafane Oliveira Santos |
| Abstract: | This paper investigates the role of market-power-driven misallocation in shaping total factor productivity (TFP) during recent economic cycles in Brazil, using the static Cournot model of Martinez and Santos (2024). The model primarily relies on macroeconomic data for calibration, allowing us to decompose Brazil's national TFP into technology and allocative efficiency components from 2000 to 2019. Over these two decades, we observe an upward trend in allocative efficiency, reflecting an increase in the labor income share and a corresponding decrease in the average markup, in sharp contrast with most developed countries. Our results further indicate that the cycles in Brazilian TFP are largely driven by allocative efficiency, with the mid-2000s economic boom mainly attributed to efficiency gains. In contrast, the technology component grows more steadily, around 0.9% per year, suggesting it reflects structural characteristics of the economy. Since allocative efficiency is bounded, this 0.9% annual growth rate can be interpreted as the current long-run growth level of TFP in Brazil. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bcb:wpaper:609 |
| By: | Jan De Loecker (KU Leuven and CEPR.); Catherine Fuss (Economics and Research Department, National Bank of Belgium); Nathan Quiller-Doust (KU Leuven); Leonard Treuren (KU Leuven) |
| Abstract: | We separately observe variable input expenditure and expenditure on fixed inputs in novel firm-level data covering the Belgian manufacturing sector over the last decades. This permits a deeper investigation of two potential drivers of the globally observed widening gap between firms’ revenue and variable input expenditure: technology and market power. Across the board, cost structures have become less reliant on variable input expenditure over time, while expenditure on fixed inputs or overhead costs has increased in prominence. We relate these changes in firms’ cost structures to performance measures and document that markups and gross profit rates increase substantially as the role of variable costs in production diminishes. Profit rates net of fixed input expenditure also increase, but by substantially less than gross profit rates. Our results suggest that technological change can explain a considerable portion of the widening gap between revenue and variable input expenditure, but that markups increase by more than necessary to break even, and that this phenomenon operates remarkably similarly across different firms and industries |
| Keywords: | Intermediate goods and services; Fixed cost; Markups; Technology. |
| JEL: | D2 D4 L1 O14 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202410-469 |
| By: | Vandenberghe, Vincent |
| Abstract: | Labour turnover is a crucial element of contemporary economic life. It can improve productivity if more productive workers replace less productive ones. However, in the short run, it generates sizeable labour adjustment costs (LACs), including productivity losses. This paper sheds new light on the turnover-productivity relationship focusing on productivity LACs. We use firm-level 2014-2022 Belgian data with information on stayers, new hires and leavers: those who are fired, those leaving voluntarily, and those who are about to retire. We use the Hellerstein-Neumark (HN) framework to quantify the productivity of these different labour types, using stayers as a benchmark. We posit that evidence of significant productivity handicaps is a good indicator of productivity LACs. Results suggest no productivity LACs for new hires. By contrast, for leavers, they point to significant ones. What is more, findings for prospective (early) retirees indicate a very sizeable drop in productivity during their last year of employment. |
| Keywords: | Labour Turnover, Labour Adjustment Costs, Labour Productivity Differences, Prospective Retirees, Short Horizon |
| JEL: | J24 J63 J26 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1549 |
| By: | Artem Kochnev |
| Abstract: | This paper examines labour productivity convergence in manufacturing of the planned and market economies in the setting of the oil price shocks of the 1970s. Using the wiiw COMECON Dataset and the KLEMS dataset, the paper constructs a single-digit industry-level productivity metric for selected industries and applies a difference-in-difference estimator to estimate the impact of the oil price shocks on convergence in productivity levels across industries between 1970 and 1985. Although the paper does not find an impact of the oil price shocks on convergence of the command economies, it does detect an accelerating impact on the convergence process of the market economies. wiiw COMECON Dataset https //comecon.wiiw.ac.at/ |
| Keywords: | Labor Productivity, Convergence, Planned Economies, Oil price shocks, Manufacturing, Productivity, Competitiveness, Difference-in-Difference, COMECON Dataset, KLEMS Dataset, Structural change |
| JEL: | O47 N64 P23 L60 Q43 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:257 |
| By: | Jerbashian, Vahagn |
| Abstract: | I estimate a nested CES production function for 9 European countries over 1996- 2020 using EU KLEMS data, distinguishing between information and communication technologies (ICT), intellectual property (IP) capital, and traditional capital. I assume that the aggregate output is produced using labor and these capital types and allow for differences in the elasticities of substitution between labor, an aggregate of ICT and IP capital, and traditional capital. The estimated elasticity of substitution between ICT and IP capital is strictly below one implying gross complementarity. ICT and IP capital together are gross substitutes for labor while traditional capital is a gross complement. The results imply that the fast pace of technological progress and accumulation in ICT and IP capital are responsible for almost the entire fall in labor income share. The imputed labor-aggregate capital elasticity exceeds 1, rising from 1996 to 2008 and falling afterward. |
| Keywords: | CES Production Function, Elasticities of Substitution, System of Equations, ICT, IP Capital, Traditional Capital |
| JEL: | E22 E25 J23 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1523 |
| By: | James (Jim) C. MacGee; Joel Rodrigue |
| Abstract: | Gross domestic product (GDP) per adult in Canada fluctuated between 70% and 90% of that of the United States between 1960 and 2020. Behind this gap lie large, systematic differences in relative incomes across the Canadian and US income distributions. There are small differences in average incomes among lower percentiles of the income distribution while large gaps exist for high-income earners, with larger gaps for business owners and the university-educated. Using data from the World Inequality Database, we find that the top 10% of the income distribution accounts for three-quarters of the gap in GDP per adult between Canada and the United States and up to two-thirds of the measured labour productivity gap. While average hours worked per working-age adult in Canada and the United States were similar in 1970 and 2019, persistent shifts in relative hours worked per adult appear to play a significant role in measured labour productivity differences between 1970 and 2019. Our work suggests that selective emigration of high-ability workers—commonly referred to as brain drain—to the United States may play a significant role in accounting for the gaps in GDP per adult and labour productivity. The lower level of innovative activities in Canada is consistent with larger income gaps for high-income earners. |
| Keywords: | Productivity |
| JEL: | D31 E24 J24 J61 N12 O47 O51 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:24-49 |
| By: | Kosuke Aoki (University of Tokyo); Yoshihiko Hogen (Bank of Japan); Yojiro Ito (Bank of Japan); Kenji Kanai (Bank of Japan); Kosuke Takatomi (Bank of Japan) |
| Abstract: | In this paper, we analyze determinants of price markups and their relationship with aggregate productivity based on long-term estimates of price markups and wage markdowns for Japanese firms. The main results are summarized as follows. First, we find that, in order to maintain profitability, Japanese firms have raised their wage markdowns while their price markups have declined since the late 1990s. Both the U.S. and Japanese firms experienced rising wage markdowns, but Japanese firms differ in that they experienced declining price markups. Second, regarding determinants of price markups for Japanese firms, we find that firms' investment in intangible assets has significantly contributed to raising price markups across industries. Meanwhile, in manufacturing, a decline in Japan's share of global exports due to changes in the international competitive environment has worked as a force for exerting downward pressure on price markups. In non-manufacturing, the number of stores per capita increased which worked as a force for enhancing the severity of price competition and exerted downward pressure on price markups. Third, we find that TFP growth in Japan was mainly driven by (1) the efficiency improvements from declining price markups, and (2) contributions from technological progress was much smaller than those of the United States. We also show that Japan's technological frontier, as measured by actual output and price markups, did not expand as much as in the United States. |
| Keywords: | Price markup; Wage markdown; Competition; Productivity; Resource allocation |
| JEL: | E24 E31 J30 J42 L12 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:boj:bojwps:wp24e15 |
| By: | Tani , Massimiliano (University of New South Wales); Avendano, Rolando (Asian Development Bank); Tolin, Lovely (Asian Development Bank) |
| Abstract: | In this paper, we examine whether, and if so how, an economy’s deliberate policy choices of regional cooperation and integration influence underlying determinants of economic growth. Building on models of growth and innovation, we analyze the role of regional integration on labor productivity and firms’ probability to innovate using data from a panel of 170 economies and 60, 000 firms over a period of two decades. Our results suggest that regionalism, as captured by metrics of regional cooperation and integration, can positively contribute to labor productivity and innovation, in addition to known factors of production. |
| Keywords: | regional integration; productivity; innovation; Asia |
| JEL: | F02 F15 O30 O40 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:ris:adbewp:0760 |
| By: | MORIKAWA Masayuki |
| Abstract: | Based on a survey of Japanese workers, this study documents the characteristics of workers who use artificial intelligence (AI) in their jobs and estimates the effects of this new general-purpose technology on macroeconomic productivity. The results indicate, first, 8.3% of workers used AI in their jobs in 2024, which is approximately 1.5 times than in 2023. Second, more educated and high-wage workers tend to use AI, suggesting that its diffusion may increase labor market inequality. Third, the use of AI is estimated to have increased labor productivity in the macroeconomy by 0.5–0.6%. Fourth, nearly 30% of workers expect to use AI for their jobs in the future, suggesting that its macroeconomic effects will increase. However, the productivity effect of AI for those who recently started using it is relatively small, suggesting a diminishing productivity impact of AI. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:24084 |
| By: | Heng-fu Zou (The World Bank) |
| Date: | 2024–11–30 |
| URL: | https://d.repec.org/n?u=RePEc:cuf:wpaper:711 |
| By: | Mr. Luis Brandão-Marques; Hasan H Toprak |
| Abstract: | Industrial policy is once again at the forefront of the policy debate around the world. However, state aid is a contentious issue in the European Union given the need to maintain a level playing in its single market. This paper estimates the effects of state aid between 2016 and 2023 on listed nonfinancial firms in Belgium, France, Germany, the Netherlands, Spain, and the United Kingdom (until 2020) using a high-frequency identification approach to address endogeneity. It finds that firms that receive state aid increase employment and revenue, but not investment or labor productivity. Moreover, it finds that there are adverse spillover effects to competing firms that significantly undo any positive own effects. These findings suggest that, should there be a case for providing state aid to firms in the European Union, this should be done at the European level instead of the member state level to mitigate adverse spillovers. Pooling resources and competitively allocating aid across the Union could preserve market competition, encourage firm entry, and ensure a more efficient distribution of funds. |
| Keywords: | Industrial policy; firm performance; state aid; spillovers |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/250 |